Certain items are easy to obtain in Costa Rica. The dish gallo pinto is one of them, as are coffee and bananas.
Some say credit cards are just as easy to acquire.
I get calls almost every day, said Carlos Jiménez as he was leaving the BAC San José, a private bank on Avenida 2 in San José, on Wednesday. They send me letters in the mail and call me from private numbers. Credit cards are looking for you more than you are looking for them.
Easy access to credit cards is an established tradition in Costa Rica. In June, the Economy Ministry (MEIC) reported that 401 different types of credit cards are available to consumers up from 350 in February provided by 26 different financial institutions in the country. Citibank and Credomatic make up almost half of the existing credit cards in Costa Rica. Citibank has 95 different cards in circulation, while Credomatic has 85.
But as in much of the rest of the world, the ease in obtaining credit cards can be as much a curse as a benefit. As more credit cards are circulated, spending increases and the economy reaps the immediate benefit of improved sales. But, when the economy sputters and unemployment spikes, as is currently happening, many credit card holders are left without funds to pay outstanding debt.
One of my aunts lost her job and was about $2,000 in debt, said Alonzo Garrillo, as he shopped on Avenida Central. (My wife and I) had to help her pay it off.
Immediately after she paid it off, we canceled it. A credit card can be a very dangerous thing.
The Ministry of the Economy reports that, as of May, there was over $1 billion in consumer debt in Costa Rica. With an estimated 1.4 million credit card holders, the average amount of debt comes to $740 of debt per user. Though the debt in Costa Rica is substantial, Ticos are in better shape than cardholders in the United States. According to the Nilson Report, average outstanding credit card debt for households in the U.S. with a credit card was $10,679 at the end of 2008.
Smarter With the Plastic
The benefit (or luxury) of credit card use lies in the ability of consumers to make a purchases and eventually pay them off in increments instead of in one lump sum.
The risk associated with the use of a credit card is the interest rate that, according to the Economic Ministry, can reach up to 50 percent on certain credit cards. The Economic Ministry reports that 26 cards have an interest rate above 47.76 percent (in colones). According to the Central Bank of Costa Rica (BCCR), the national average interest rate on credit cards is 21.61 percent.
But since the debt breached the $1 billion barrier this year, both banks and consumers have exercised more caution towards the effects of credit card debt.
At an economic workshop to discuss the current state of the financial markets, Eric Vargas, manager of investment strategy at the financial consulting firm Aldesa, alluded to the shift in credit card maintenance among banks.
Before the crisis, we had an era when it was extremely easy to obtain credit cards, and people could simply ask for them, Vargas said. This has changed. Now banks have a greater limitation on the amount of liquidity they manage. It has made it harder for people to get credit cards, and banks are looking for clients who have good credit histories and will be able to make the expected payments.
Consumers appear to have wised up as well.
According to Superintendence of Financial Entities (SUGEF), there has been a 26 percent drop in the use of credit cards between December 2008 and May 2009.
This idea of responsible consumption was echoed by consumers.
Debit. I only use debit, said Alberto Beltrán, as he held several plastic bags of purchases on Avenida Central. I am scared of credit. There are too many risks with credit. I prefer to buy with money that I already have. I like to buy with peace of mind.
Currently, there are a reported 4.1 million debit cards in circulation.
In Costa Rica, consumers are becoming more intelligent about how they spend, said José Blanco, manager of economic studies at the Economic Ministry. People have become more cautious and they realize how high interest rates are or know of someone who has fallen into a difficult situation with debt (see box) The good thing is that it appears people are learning from the mistakes of others.
Though credit cards may be readily available to the public, when offered, the attitude has taken on the ring of a dieter when offered ice cream: Sounds nice, but, I d better not.
Options for Credit
When consumers who have accumulated significant amounts of credit card debt are unable to make payments, they have the following options:
Speak with the bank to consolidate debts. Banks can provide a low interest loan to pay the debt and then the consumer pays back the loan at a lower monthly fee with a lower monthly interest rate.
Align debts onto one credit card and pay one fee, versus several.
Work with a debt agency. Debt agencies negotiate with credit card providers to lower debt and interest rates. The agencies evaluate debt and aid consumers in payments, acting as a mediator between the card holder and the provider.
If debt is insurmountable and the debtor is unable to make payments, banks may bring the debtor to a legal proceeding, where a court will determine how the money will be paid. This sometimes results in a liquidation of assets, such as possessions or property. In this case, the bank typically incurs some type of loss, ultimately paying part of the debt.
Banks may try to contact the employer of the debtor and ask for assistance in payment. In this case, the employer makes an arrangement with the debtor to garnish wages to pay down the debt.